Anyone who wants to understand how the political process leads to wasteful spending on public transportation need look no further than the North Shore Connector, a 1.2 mile extension of the light rail line in Pittsburgh. Senators John McCain and Tom Coburn recently criticized this project as one of the three most offensive uses of federal stimulus funds. Recent attempts by the Pittsburgh Post-Gazette and the Port Authority of Allegheny County (PAAC) to defend this project against the Senators’ criticism reflect economic fallacies and also illustrate the process by which interest groups seek to profit from federal and state government money at the expense of taxpayers as a whole.

Defenders of the project point out that its construction provides thousands of jobs while supporting economic development on Pittsburgh’s North Shore. They ignore, however, the opportunity cost. A comparable number of jobs would have been created if the money had been spent elsewhere and much larger benefits would have resulted if the $529 million spent on the North Shore Connector were invested in a private sector project that consumers were willing to pay for.

Consumers will not be willing to pay even close to the more than six dollar per ride cost that would be required to cover the annual interest on the money invested in this project, not counting the operating cost and depreciation. The money spent on this project could be used to buy a brand new $40,000 SUV for each one of the 11,500 riders per day that are expected to use the North Shore Connector.

If it had not been for $62.5 million of economic stimulus funds, construction of the Connector would likely have been halted due to cost overruns. Not only has the cost increased from an original estimate of $363 million to $528.8 million, as noted by the Allegheny Institute (http://alleghenyinstitute.org/administrator/components/com_policy/uploads/vol10no42.pdf), but the project was scaled back in size, as PAAC dropped a planned spur to the Convention Center from the project. The PAAC website does not mention the most recent increase in costs, listing the project as costing $435 million to construct.

Why is so much money being spent on this project? Because about 80 percent of the cost was borne by the Federal Government and one sixth came from the Commonwealth of Pennsylvania, leaving only 3.33% of the cost to be paid by local taxpayers. Thus many Pittsburgh residents are strong supporters of the project. Supporters believe that if the money is not spent in Pittsburgh, it will be spent in some other city. When Uncle Sam pays for it, the cost is divided among the entire US population while the benefits accrue to a much smaller number of local transit agency employees, construction workers, and city residents who expect to use the service. It is not worth the effort of individual taxpayers to oppose this project politically because it costs only a few dollars per taxpayer, while the benefits to local groups are large enough that they are more likely to reelect their representatives in Harrisburg and Washington if projects like this are funded. When this and numerous other projects that benefit interest groups get added to the federal and state budgets, we end up with enormous government debt, which may soon be unsustainable.

Monday, August 9, 2010

An Example of Wasteful Transit Spending in Pennsylvania.

Anyone who wants to understand how the political process leads to wasteful spending on public transportation need look no further than the North Shore Connector, a 1.2 mile extension of the light rail line in Pittsburgh. Senators John McCain and Tom Coburn recently criticized this project as one of the three most offensive uses of federal stimulus funds. Recent attempts by the Pittsburgh Post-Gazette and the Port Authority of Allegheny County (PAAC) to defend this project against the Senators’ criticism reflect economic fallacies and also illustrate the process by which interest groups seek to profit from federal and state government money at the expense of taxpayers as a whole.

Defenders of the project point out that its construction provides thousands of jobs while supporting economic development on Pittsburgh’s North Shore. They ignore, however, the opportunity cost. A comparable number of jobs would have been created if the money had been spent elsewhere and much larger benefits would have resulted if the $529 million spent on the North Shore Connector were invested in a private sector project that consumers were willing to pay for.

Consumers will not be willing to pay even close to the more than six dollar per ride cost that would be required to cover the annual interest on the money invested in this project, not counting the operating cost and depreciation. The money spent on this project could be used to buy a brand new $40,000 SUV for each one of the 11,500 riders per day that are expected to use the North Shore Connector.

If it had not been for $62.5 million of economic stimulus funds, construction of the Connector would likely have been halted due to cost overruns. Not only has the cost increased from an original estimate of $363 million to $528.8 million, as noted by the Allegheny Institute (http://alleghenyinstitute.org/administrator/components/com_policy/uploads/vol10no42.pdf), but the project was scaled back in size, as PAAC dropped a planned spur to the Convention Center from the project. The PAAC website does not mention the most recent increase in costs, listing the project as costing $435 million to construct.

Why is so much money being spent on this project? Because about 80 percent of the cost was borne by the Federal Government and one sixth came from the Commonwealth of Pennsylvania, leaving only 3.33% of the cost to be paid by local taxpayers. Thus many Pittsburgh residents are strong supporters of the project. Supporters believe that if the money is not spent in Pittsburgh, it will be spent in some other city. When Uncle Sam pays for it, the cost is divided among the entire US population while the benefits accrue to a much smaller number of local transit agency employees, construction workers, and city residents who expect to use the service. It is not worth the effort of individual taxpayers to oppose this project politically because it costs only a few dollars per taxpayer, while the benefits to local groups are large enough that they are more likely to reelect their representatives in Harrisburg and Washington if projects like this are funded. When this and numerous other projects that benefit interest groups get added to the federal and state budgets, we end up with enormous government debt, which may soon be unsustainable.